32. Provisions for pensions and similar obligations

Pension provisions are recognised in accordance with IAS 19 (Employee Benefits). In the financial year 2013, IAS 19 was applied for the first time following a comprehensive adaptation by the IASB (see chapter „Notes to the group accounting principles and methods”).

Provisions for pensions consist of commitments primarily related to benefits defined by the provisions of company pension plans. These take the form of defined-benefit plans directly from the employer (employer’s commitments) and defined benefit plans from external providers (benevolent funds in Germany and international pension funds). The external providers’ assets serve exclusively to finance the pension entitlements and qualify as plan assets. The benefits under the different plans are based on performance and length of service. Furthermore, the length-of-service benefits are provided on the basis of fixed amounts.

The most important performance-based pension plans are described in the following.

Germany

METRO GROUP grants many employees in Germany retirement, disability and surviving dependant’s benefits. New commitments are granted in the form of “defined-benefit” commitments in the meaning of IAS 19 (contribution-oriented commitments pursuant to German company pension law), which comprise a deferred compensation component and an employer-matching component. Contributions are paid to a pension plan reinsurance from which contributions are paid out when the insured event occurs. Entitlements not covered by reinsurance are included in provisions.

In addition, various pension funds exist that are closed for new contributions. In general, these provide for life long pensions starting with the statutory retirement age or recognised invalidity. Benefits are largely defined as fixed payments or on the basis of set annual increases. In special cases, benefits are calculated in consideration of accrued statutory pension entitlements. These commitments provide for a widow’s or widower’s pension of varying size depending on the benefits the former employee received or would have received in case of invalidity. Legacy commitments are partially covered by assets held in benevolent funds. The benevolent funds' decision-making bodies comprise both employer and employee representatives. The Management Board decides on the deployment of funds and financial investments. It may commission third parties to manage fund assets. No statutory minimum endowment obligations exist. Insofar as pledged benefits cannot be paid out of the benevolent fund assets, the employer is obliged to directly assume these payments (subsidiary liability).

Netherlands

A defined benefit pension plan exists in the Netherlands which foresees pension payments as well as invalidity and death benefits. The size of the benefits depends on the pensionable salary per year of service. Benefits are funded through a pension fund whose decision-making bodies include employer and employee representatives. The fund's executive committee has responsibility for asset management. For this purpose, the pension fund has an investment committee. In line with statutory minimum funding requirements, the pension fund's executive committee must ensure that commitments are covered by assets at all times. In case of underfunding, the pension fund's executive committee may take different measures to compensate for this. These measures include the requirement for additional contributions by the employer and cutbacks in employee benefits.

In addition, another defined-benefit plan exists in the Netherlands which is recognised as a defined-contribution plan (multi-employer plan) because the fund does not provide the necessary information to be recognised as a defined-benefit plan. It is called “Bedrijfspensioenfonds voor de Detailhandel” (retailer pension fund).

United Kingdom

In July 2012, METRO GROUP sold its cash & carry business in the United Kingdom to Booker Group PLC. Pension commitments were not part of the sale. Since the date of the sale, only vested benefits and current pensions from service years at METRO GROUP exist. In accordance with legal stipulations, the vested interests must be adjusted for inflation effects. The commitments are covered by assets which are managed and invested by a corporate trustee. The executive committee of this corporate trustee consists of employer and employee representatives. In any case, the trustee must ensure that benefits can be paid at all times in future. This is regulated on the basis of statutory minimum financing requirements. In case of underfunding, the trustee may require additional employer contributions to close the funding gap.

Belgium

There are both retirement pensions as well as capital commitments whose size depends on the pensionable length of service and pensionable income. In addition, benefits are paid to employees aged 58 and older who become unemployed. In principle, benefits are funded through group insurance contracts that are subject to Belgian regulatory law.

Considered individually, other retirement plans are immaterial and are shown cumulatively under “other countries”.

The following table provides an overview of the present value of defined benefit obligations by METRO GROUP countries as well as material obligations:

The plan assets of METRO GROUP are proportioned to the following countries:

The above pension commitments are valued on the basis of actuarial calculations in accordance with IAS 19. The basis for the valuation are the legal, economic and tax circumstances prevailing in each country.

The following material parameters are used in the actuarial valuation:

As in previous years, METRO GROUP used generally recognised methods to determine the actuarial rate of interest. These determine the respective actuarial rate of interest based on the yield of investment grade corporate bonds as of the closing date in consideration of the currency and maturity of the underlying obligations. The actuarial rate of interest for the eurozone and the UK is based on the results of a method applied in a uniform manner across the group using market data as of 31 August 2013. In the determination of the interest rate, the duration of commitments based on the results as of the closing date 31 December 2012 was considered. In countries without a liquid market of suitable corporate bonds, the actuarial interest rate was determined on the basis of government bond yields.

The size of other, immaterial parameters used to determine pension commitments corresponds to the long-term expectations of METRO GROUP. Aside from the actuarial interest rate the inflation rate represents another key actuarial parameter. In the process, the nominal rate of wage and salary increases was determined on the basis of expected inflation and a real rate of increase. In Germany, the rate of pension increases is derived directly from the inflation rate insofar as pension adjustments can be determined on the basis of the increase in the cost of living. In international companies, pension adjustments are also generally determined on the basis of the inflation rate.

The impact of changes in fluctuation and mortality assumptions was analysed for major plans. Calculations of the mortality rate for the German group companies are based on the 2005 G tables from Prof. Dr Klaus Heubeck. As in previous years, these were modified by actual developments of mortality rates based on analyses conducted by the group's actuary. The actuarial valuations outside of Germany are based on country-specific mortality tables. The resulting effects of fluctuation and mortality assumptions have been deemed immaterial and are not listed as a separate component.

The following is a sensitivity analysis for the key valuation parameters with respect to the present value of pension entitlements. The actuarial rate of interest and the inflation rate were identified as key parameters with an impact on the present value of pension entitlements. In the context of the sensitivity analysis, the same methods were applied as in the previous year. The analysis considered changes in parameters that are appropriately considered possible, corresponding to a confidence interval of 75 per cent. The observation period for possible changes in parameters comprises the period until the next closing date, 30 September 2014. Stress tests or worst-case scenarios, in turn, are not part of the sensitivity analysis. The selection of the respective spectrum of possible changes in parameters is based on historic multi-year observations. This almost exclusive reliance on historic data to derive possible future developments represents a methodical constraint.

The following illustrates the impact on the present value of pension entitlements of an increase/decline in the actuarial rate of interest by 100 basis points or an increase/decrease in the inflation rate by 25 basis points:

The granting of defined-benefit pension entitlements exposes METRO GROUP to various risks. These include general actuarial risks resulting from the valuation of pension commitments (for example, interest rate risks) as well as capital and investment risks related to plan assets.

With a view to the funding of future pension payments from indirect commitments and a stable actuarial reserve, METRO GROUP primarily invests plan assets in low-risk investments. The funding of direct pension commitments is secured through operating cash flow at METRO GROUP.

The fair value of plan assets by asset category can be broken down as follows:

Fixed-interest securities, shares and funds are regularly traded in active markets. As a result, the relevant market prices are available. The asset category “fixed-interest securities” only includes investments in investment grade corporate bonds, government bonds and mortgage-backed bonds (Pfandbriefs). Risk within the category “shares and funds” is minimised through geographic diversification.

Real estate assets are not traded in an active market. €137 million (30/9/2012: €137 million; 31/12/2012: €137 million) in real estate assets is used by METRO GROUP itself.

Other assets essentially comprise receivables from insurance companies in Germany, Switzerland and Belgium. All of these are first-rate insurance companies.

The actual gain from plan assets amounted to €32 million in the reporting year (9M 2012: €74 million; 12M 2012: €90 million).

For the financial year 2013/14, the company expects employer payments to external pension insurers totalling approx. €23 million and employer contributions of approx. €6 million in plan assets, with contributions in the Netherlands accounting for the major share of this total. Expected contributions from deferred compensation commitments in Germany are difficult to project and have therefore not been included in expected payments.

Changes in the present value developed as follows:

The weighted average term of defined benefit commitments for the countries with material pension obligations amounts to:

The net present value of defined benefit pension commitments can be broken down as follows based on individual groups of eligible employees:

The fair value of plan assets developed as follows:

At one Swiss company, plan assets exceeded the value of commitments as of the closing date. Since the company cannot draw any economic benefits from this surplus, the balance sheet amount was reduced to zero in line with IAS 19.64 (b). The change in the effect of the asset ceiling of approx. €4 million was recognised as expenses in other comprehensive income. In addition, a surplus coverage exists in a defined benefit plan in Belgium. An asset adjustment is not necessary here.

The pension expenses of the direct and indirect company pension plans can be broken down as follows:

In addition to expenses from defined benefit pension commitments, expenses for payments to external pension providers relating to defined contribution pension commitments of €40 million (9M 2012: €39 million; 12M 2012: €53 million) were recorded.

A pension plan at Media-Saturn in the Netherlands is classified as a multi-employer plan in accordance with IAS 19.148. This is a typical, strictly regulated Dutch pension plan. In case of deficient coverage, Media-Saturn Netherlands would be obliged to compensate this deficient coverage by making higher contributions to this fund in future. These higher contributions would then apply to all participating companies. Media-Saturn cannot be held liable for these commitments by other companies. Approximately 30,000 companies in the retail industry participate in this plan and make contributions for a total of more than 240,000 employees. Media-Saturn Netherlands currently makes contributions to this plan for 5,333 employees. Contributions are calculated for five years (currently from 2012 to 2016). These correspond to a set percentage of an employee's salary (currently 19.4 per cent), with employees assuming part of the contributions for salaries above €12,415 and no contributions being paid for salaries above €50,064. In the financial year 2013/14, contributions to the “Bedrijfspensioenfonds voor de Detailhandel” fund are expected to total €6 million. In September 2013, the coverage ratio stood at 107 per cent.

The provisions for commitments similar to pensions essentially comprise commitments from employment anniversary allowances, death benefits and pre-retirement part-time plans. Provisions amounting to €76 million (30/9/2012: €73 million; 31/12/2012: €76 million) were formed for these commitments. The commitments are valued on the basis of actuarial expert opinions. In principle, the parameters used are identical to those employed in the company pension plan.